Daily Brief

UK house market cools

USD and NOK in the lead

The US dollar and Norwegian krone led on Monday, strengthening by an average of 0.3%, while the Swedish krona brought up the rear, down by 0.3%. Sterling was just about unchanged against the euro, franc, yen, Canadian dollar and on average.

There was little to justify the differing performance of the outliers. An estimate of 0.5% for fourth quarter growth in Sweden’s GDP was vaguely disappointing, only half of what analysts had predicted, but it was at least positive. Similarly with the Swedish manufacturing sector purchasing managers’ index; it was two and a half points lower at 62.4 and below the expected 65, yet it was much better than the equivalent numbers from elsewhere.

The US manufacturing PMIs from Markit and ISM at 59.21 and 58.7 were certainly good enough to have taken the US dollar higher but they appeared after the event. They served to support the dollar rather than lift it. Likewise for the NOK, there was no correlation between its jagged upward move and the smooth progress of a 3% rise in oil prices.


Strong mortgage approvals

The Bank of England’s Money and Credit report revealed another strong month for mortgage lending, with approvals at their second-highest level in 13 years. The manufacturing PMI also surprised on the upside, despite scoring a three-month low.

In its report the bank pointed out that “mortgage approvals for house purchase in 2020 (818,500) were higher than in 2019 (789,100), notwithstanding house purchase approvals hitting a record low of 9,400 in May 2020”. Household deposits increased by £20.9 billion in December, the strongest since May.

Britain’s manufacturing PMI report identified “supply chains stretched by Covid restrictions and Brexit” and a manufacturing sector that “slowed sharply at the start of 2021”. In the Eurozone, the collective manufacturing PMI came in almost exactly as expected at 54.8. The national readings ranged from Spain’s 49.3, a seven-month low and the only one below the 50 breakeven level, and the Netherlands’ 28-month high at 58.8.


Aggressive RBA

The Reserve Bank of Australia announced this morning that it would keep its benchmark interest rate unchanged and increase the pace of bond purchases from April. The first of those decisions was expected; the second came as a surprise and sent the Aussie lower.

Already the RBA is buying bonds faster than the government is selling them, and the additional $100 billion will shrink the bond market by $1.5 billion a week. The move was described as “aggressive” by analysts. The Aussie lost half a US cent on the news, leaving it a net quarter of a cent lower on the day.

The agenda for London’s day is quite thin. Nationwide has already announced that UK house price growth slowed in January for the first time in six months, to 6.4%, as the end of the stamp duty holiday approaches. Italy and the Eurozone will reveal their estimates for gross domestic product in the last quarter of 2020. Tonight brings the first services sector PMIs as well as the quarterly NZ employment numbers.


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